CarMax Executive Insights: Supply & Demand, Advertising
Supply & Demand
John Murphy – Bank of America: As we look at the used unit volumes which were flat year-over-year after a quarter of positive growth, how much of that stagnation would you attribute to lack of supply versus lack of demand and on the demand side, are you seeing any shift away from used into new or is that not really what’s going on?
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Tom Reedy – SVP and CFO: It’s a variety of factors and it’s really difficult for us to say that there is a shift from used to new, but the lack of supply is not just – it has multiple impacts on our business. One, we have to historical performed – kind of our sweet spot has been one to three year old cars and obviously there are less of those available. You’ve seen that with our mix and of our inventory shifting towards older stock. But the other part is there has just been this appreciation across all segments in the wholesale business that have caused this really high retail. So, I believe it’s having some impact on our sales. I also think that the weak economy and high unemployment rate continues to be drag on the consumer.
John Murphy – Bank of America: As new stores open up, is there a higher cost associated with sourcing the inventory for those stores. In other words, how much of a difference is there between average gross profit per unit in a newly opened store versus one that’s been up and running for a while?
Tom Reedy – SVP and CFO: Our average profits, you know we manage them pretty consistently and it’s not that there is a big difference in the newer stores, but they are obviously starting up at a much lower sales rate and they are carrying a much heavier load of SG&A.
Craig Kennison – Robert W. Baird & Co.: On the advertising program you guys have, how satisfied are you with the return on investment and just how effective do you think that advertising program is?
Tom Reedy – SVP and CFO: I wish we could manage our advertising better than we can. We are a firm believer that we need to continue to build our brand, obviously we wish we got a little more traffic in the quarter then we did, but advertising is not just what we spend on TV, but also our strategy around the Internet, around paid searches and our listing, where we list our cars with Cars.com and AutoTrader.com and other listing agent. So it’s been very dynamic over the last several years as we’ve shifted lots of dollars towards the Internet and we believe, we’re making a solid investment in advertising, we believe we’re building our brand and we believe over the long run advertising obviously all that we’re spending will pay off.